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How you can truly stop working at 65

Tan Ooi Boon on 03 Jan 2021

The Straits Times


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Would you and your spouse be keen to receive a steady retirement income of more than $4,500 a month for life?


All you need to do is to ensure that together you have combined savings of more than $550,000 in your Central Provident Fund (CPF) accounts when you both hit 55.


This total sum will enable both of you to sign up for CPF Life's highest tier - the Enhanced Retirement Sum (ERS) which stands at $279,000 this year. That will enable each of you to receive a monthly payout of up to $2,300 from age 65.


If both of you are already over 55, it is not too late to top up your retirement sums to the highest tier so that you can receive more monthly payouts.


Many people still do not realise that CPF Life can enable all retirees to enjoy such lucrative monthly incomes without the need to invest in a second property to collect rent as retirement income.


Ask yourself this question - even if you can buy a property that costs only about $500,000, there is no guarantee that you will be able to collect rents as high as $4,500 a month.


Note that landlords need to pay taxes, maintenance as well as mortgages, whereas the payout from CPF Life is tax-free income that is automatically credited to your bank accounts every month, for as long as you live.


By all means, buy investment properties if you can afford to do so, but don't miss out on your right to receive such good payouts from CPF Life.


If you and your spouse don't have so much in the CPF at 55, aim for the second tier - the Full Retirement Sum (FRS) which stands at $186,000 this year. FRS provides a monthly payout of up to $1,500 each.


This means that a combined balance of a little over $370,000 will allow a retiring couple to receive about $3,000 every month.


How CPF can save you from having to work past retirement


A recent OCBC survey revealed the sobering picture that 75 per cent of Singaporeans face the risk of being short of money in their retirement.


About half of these folks are focused on keeping up with their monthly expenses and do not make any attempt to save for old age.


Indeed, a man who reacted to the Invest feature on the survey last month posted this comment on The Straits Times Facebook page: "How can I start planning for retirement when I don't even have enough money now?"


Yes, the pandemic has made life a lot more difficult for many workers but just like past recessions, the bad times will blow over. But your needs when you become older will remain and this is something that cannot be wished away.


Those who find themselves short should really start to watch their budgets and ask: Are there expenses which can really be cut down or even done away with?


After all, the No. 1 reason why people end up short here is that they spend more than what they earn.


How you can help yourself


Even if you don't actively keep track of your budgets or do financial planning, you should be happy to know that the CPF is quietly helping all members to grow their money for their retirement. But you need to do your part, too.


• If you are an employee, you


have less to worry about because your employer will help you by making the CPF contribution every month. If you are self-employed, it is critical that you make your own monthly contributions or you risk depriving yourself of the chance to enjoy a steady income in old age. The annual limit for CPF contribution is $37,740.


• If you do not have a cash flow problem, you should reduce the use of CPF for your mortgage payment because every dollar in your Ordinary Account (OA) earns 2.5 per cent interest, compared with only 0.5 per cent offered by some banks for fixed deposits. You can log on to the myCPF portal to reduce the CPF payment for the loan easily so that more cash is deducted from your bank account every month.


• Unless you are very savvy and are familiar with all the investment products, you should not use money from your CPF for investment because it earns risk-free interest of up to 6 per cent for the first $30,000. Even at the OA's 2.5 per cent, statistics have shown that most members do better by leaving their funds in CPF than using them for investment.


Invest recently featured a man who lost more than $200,000 of his CPF money in a botched investment.


As your CPF money is safe from even a bankruptcy action, you do well to treat it as your last line of financial defence.


Why you can't withdraw all the money in your CPF at 55


Actually you can, provided that you can convince the CPF Board that you have already invested in a comprehensive annuity plan that can provide you with a guaranteed payout that is better than what CPF Life can provide. Frankly, it is doubtful if such a plan exists.


The only reason CPF Life can offer lifelong payment at such low entry levels is that it is backed by the Government.


Unlike private companies, the Government is not in the business of making profits. See how it dished out some $100 billion to help Singaporeans in the current crisis.


But to earn such payouts, individuals need to do their part as well, which is to set aside the necessary retirement sums in their CPF at 55 so that the money can grow to last a lifetime.


Contrary to the misinformation that CPF is "locking up" people's savings for life, this step is needed to help give all CPF members an option to stop working at 65.


Ask yourself this question - do you want to receive a fixed yearly income of up to $26,000, totalling more than half a million dollars over the next 20 years, without having to work?


The answer is obvious and this is the reason a majority of Singaporeans not only leave larger amounts in the CPF after 55, but are also constantly thinking of ways to put in more money to earn the high risk-free interest that CPF offers.


CPF is your best financial account after 55


After setting aside your retirement sum for CPF Life, with the exception of MediSave which is needed for medical expenses, all remaining money in your OA and Special Account (SA) is yours to use anytime - you can withdraw any amount and as often as you like.


But you should not be in a hurry to withdraw the money as there is nowhere else you can park your money at such good risk-free rates.


Note that any withdrawal will come from the funds in SA first because you are already enjoying the best returns by joining CPF Life.


That said, even the OA's 2.5 per cent should be extremely attractive.


If you have previously used your CPF to pay for your mortgage, you should log in to myCPF, go to "My Requests" and under "Property", select "Make a housing refund with cash".


If you are eligible to make such a transaction, this is your ticket to putting your cash into the CPF and earning 2.5 per cent interest.


The best part? After 55, there is no minimum deposit period to earn that interest and you can withdraw the money any time.


Source: The Straits Times © Singapore Press Holdings Limited. Reproduced with permission.



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